Foreign insurance firms are set to face higher hurdles if they want to soak up a bigger stake in Vietnam’s insurance companies.
Many foreign insurer expansion plans maybe at the crossroads |
A Ministry of Finance (MoF) source said a draft circular, scheduled to be approved by the MoF this month, would see a 20 per cent cap set on a domestic and foreign single shareholder stakes in an insurance company.
Existing insurance companies, which have to meet new capital structure requirements, will have to adjust.
Allanda McConnel, Ernst & Young’s partner in Transaction and Advisory Services, said that a 20 per cent cap would limit the transfer of foreign partners’ knowledge and technology to Vietnamese insurance companies.
“The level does not encourage genuine “strategic” investors as they are unable to have significant management input and therefore will tend to look elsewhere to place investments. Local insurance companies will be limited to primarily “financial investors” who contribute money, but limited technical or management expertise. In the longer term, this makes these firms less competitive,” said McConnel.
Phung Dac Loc, the Association of Vietnamese Insurers’ general secretary, said the proposal could turn foreign insurance companies away although buying a stake in a local insurer with an existing branch network, labour and customer base could be a safer option than setting up a wholly-owned foreign entity.
The last wholly foreign acquisition of a domestic insurance company would likely be the Japanese giant Dai-ichi acquiring 100 per cent of Bao Minh CMG, the fifth largest life insurer in Vietnam.
However, McConnel said this system would not keep foreign insurers at bay for long, but force them to change strategy.
“Vietnam is a superb market for insurers and there will be those who pursue a 100 per cent strategy and those that will take the 20 per cent for now in the hope that the government will relax this restriction at some point in the future,” said McConnel.
At the moment, many local insurance companies are seeking foreign strategic partners. They include state-owned insurers.
Vietnam National Insurance Corporation (Bao Viet) plans to sell an 18 per cent stake to foreign investors.
Bao Minh, the second largest non-life insurer in the market, will offer 16.6 per cent.
Trinh Thanh Hoan, MoF’s Insurance Department head, said there were plans to reduce the state’s holding in Bao Viet and Bao Minh which currently stood at 65.34 and 63 per cent respectively.
Loc said that setting a cap on a single shareholder’s stake was necessary to prevent “bad corporate governance practices” which may arise from domestic insurance companies’ capital structures where the shareholder maintains a controlling stake.
By Vu Giang
vir.com.vn